The auto industry at a crossroad

South Korea’s ranking on the global list of automakers is shaking. According to the Korea Automobile Manufacturers Association, shipments in the first months of this year declined by 34,000 units, coming in at 599,000 units. The performance pushed Korea behind Mexico’s 632,000 units to seventh place. Korea first ranked sixth in automaking countries in 2016 after being ranked fifth in 2015. This year it could end up lower.

Signs of weakening have long been seen as warnings in the world of automobiles. Exports have sunk for the fifth consecutive year and Korea has become inundated with imports. Output reduction this year is mostly due to the closure of GM Korea’s Gunsan factory in North Jeolla. But the deterioration of the Korean car brands is not restricted to a certain company. Local heavyweights, Hyundai Motor and Kia Motors, have been struggling. Their operation profit against revenue hit seven-year lows of 4.7 percent and 1.2 percent, respectively, last year. Their profitability rate is the lowest among global competitors. Their share in the United States and China is sinking fast. Worsening performance also makes their future murky as they cannot invest big in future mobility or highly lucrative luxury models.

Waning competitiveness is the biggest problem of Korean automakers. Foreign exchange rates and other external factors played a part. But fundamentally, high labor cost and poor productivity are the real cause. Korean carmakers pay employees more than Toyota and Volkswagen, but it takes Korean workers longer to turn out a car. Militant unions are largely blamed as they vehemently oppose flexible labor appropriation. The motor landscape is moving towards a new paradigm of autonomous driving and clean fuel. The local auto industry has no future if it does not fix rigid labor relations and high-cost and low-efficiency productivity structures and move fast to invest in the future.

JoongAng Ilbo, Mar. 14, Page 30